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14 Things to Avoid Before Buying a House

14 Things to Avoid Before Buying a House

Many first-time home buyers are surprised to discover just how many ways you can mess up a home purchase. You may have got your pre-approval, found a home you loved and made an offer. But if you want to avoid messing up the transaction, you will need to be extremely careful until the sale has closed.

Keep reading as I tackle what not to do before buying a house. Many of these items are mortgage mistakes that can be easily avoided. If you have an exceptional mortgage broker or real estate agent, more than likely a few of these points have already been mentioned.

Use the following tips to protect yourself and your home purchase. In fact, be sure to check out what you should do before buying a home. These twenty tips will help you make the best buying decision possible.

Making mistakes is easy when you have never bought a home before. Avoid these home buying mistakes to keep the stress out of your life!

  1. Don’t miss loan payments.

You must keep your payments current on all your loan accounts, including credit cards and car loans. The lender will look at your credit again before finalizing your mortgage, and if you have missed any payments, it may lead to you losing the loan.

Many buyers mistakenly believe that once the lender issues their loan commitment, they are golden. This is NOT the case!  Lenders have the power to revoke a mortgage commitment and will do so if they see fit. Not too long ago a buyer was purchasing a home I listed in Millbury Mass. The buyer had been selling and buying a house simultaneously. They closed on their existing home but didn’t make their last mortgage payment.

Unfortunately, this was flagged on their credit report and prevented the buyer from getting the loan for their new purchase.

They had to apply at a new bank under a different program (FHA instead of conventional). Needless to say, this caused their purchase to be delayed, and in the process, they lost thousands of dollars.

  1. Be careful before you consolidate your debt.

Debt consolidation can be tempting when you finally start looking at buying a home. Most consolidation offers make it possible for you to bring all your debt under one umbrella payment, which makes sense for some people.

But there are also often hidden fees and interest rates that can increase dramatically without warning. Consolidation may not improve your credit in the way you expect, so be sure to read all the fine print.

  1. Avoid changing jobs.

It goes without saying that changing jobs is not something you should do in the middle of purchasing a home! One of the things lenders look closely at is your employment history. They want to be sure that you are financially stable and capable of making your loan payments.

By changing a job before you get your loan, you make yourself less appealing to the lender. Changing situations may cause the lender think you are unstable, or that you won’t have a steady income to keep up with the mortgage. The word stability is something lenders love.

Keep your move under wraps until after the closing takes place.

  1. Don’t shift your finances around before getting the loan.

When a lender pre-approves you, the approval is based on the current state of your finances. You want to maintain that state – the one that got you the pre-approval – at all costs. Sometimes buyers make the mistake of shifting their money around to better position themselves, but this is a mistake.

Wait to make any financial changes until after you have gotten your mortgage. If a lender sees you moving money around various accounts, they will ask for an explanation.

You will need to give them a detailed accounting of why you moved your money around. Avoid making this mistake and keep your money in one place before closing.

  1. Don’t start banking at a new institution.

Your bank may have made you angry or upset. Or maybe you saw a great offer from a competing bank that you just can’t pass up. Well, you do need to pass it up, because changing banks before getting your loan can disrupt everything.

Just like the job and the finances, your banking history and status is part of the equation that leads to you getting pre-approved. Change your bank, and you may not get final approval.

  1. Avoid buying a car…or motorcycle, RV, boat, etc.

Without a doubt buying a car while also purchasing a home is a common mistake. Doing so is also at the top of the list of what you shouldn’t do before buying a home. Sometimes the feeling of knowing you are finally going to get a home of your own can be so exciting that you start looking at other ways to improve your life – like buying a car.

Unfortunately, purchasing a car can throw a wrench into your home buying plans. Your loan pre-approval was based on the state of your credit and your debt load at the time of pre-approval before you bought a car. Adding the debt that the car purchase will bring may make you unable to get the loan for your home.

  1. Don’t buy furniture or household goods on credit.

Another mistake many home buyers make is using credit to start preparing for their new living arrangements. You may want to start buying furniture and appliances to fill up your new home and make it truly yours, but hold back.

Taking on new debt, even for furniture or other household related items, will change the state of your credit and may throw up a flag for the lender that leads to the loss of your loan approval.

  1. Avoid making large deposits into your bank account or making cash deposits.

Money that appears suddenly in your bank account makes lenders uneasy. In fact, they prefer for you to have the money that is going to your down payment in the same account for at least two months.

Lenders refer to the two month period as “seasoning,” and consider it a demonstration of stability and your ability to cover the loan payments. Whenever you make a significant deposit or start doing unusual or unexpected things with your finances before the home purchase, the lender may begin to scrutinize the loan and might back out.

The bank could, in fact, think it’s fishy to see large deposits moving in and out of your account, especially if that hasn’t happened before. Doing as little as possible to make a lender scrutinize your finances.

  1. Avoid lying or stretching the truth on your loan inquiry.

You may have no intention of lying about your finances when you fill out a loan application, but the point needs to be stated regardless. Lying on a loan application is fraud, and if the lender finds out that you mislead in any way, you will almost certainly lose your loan.

Even stretching the truth or making an honest mistake that is inaccurate, can cause you significant problems if the truth is discovered. So be very, very careful that all the information you put down is entirely accurate. Falsifying knowledge is a definite no-no when applying for a mortgage.

This a significant home buying mistake that can put you in a horrible spot.

  1. Don’t let anyone make inquiries into your credit.

Any time you apply for a credit card, a loan or even try to sign up for a new service, like a cell phone service, the company you are working with will probably make a credit inquiry. They do this to determine if you are a safe risk, much as the mortgage lender does.

But when the mortgage company sees that inquiries are being made, it may assume you are trying to take out more debt – even if you aren’t. While one or two queries may not be enough to lose your home loan, there is no reason to take unnecessary risks when you are so close to getting your home.

One mortgage myth worth knowing – having your credit checked by multiple lenders when buying a home does not affect your credit score all that much.

From MyFICO – “FICO scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto, and student loans, differently. For these types of loans, FICO Scores ignore inquiries made in the 30 days before scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.”

  1. Don’t spend the money you are going to use to cover closing costs.

For many home buyers, the period surrounding the home purchase is one of financial scarcity. Money may be tight right now, which can make the money you saved to cover closing costs tempting. But avoid spending it.

The last thing you want is to be unable to cover closing costs when you are at the point where you almost have your new home. Stay strong and avoid spending it if you can help it. AND, Don’t overspend on a home!

  1. Don’t overextend yourself.

When buying a home, lots of lenders will gladly give you what they think you can afford on paper. What you qualify on paper, however, doesn’t necessarily mean what you’ll be comfortable living on day to day.

Some buyers make the mistake of really overextending themselves. They end up becoming a slave to their home. If going out to a nice dinner from time to time is something you have been accustomed to be more conservative with your house purchase.

  1. Avoid being a co-signer for anyone.

When you co-sign a loan, you are obligating yourself financially. It does not matter that you are not the primary person on the loan. If the lender needs money and is unable to get it anywhere else, it will come looking for you to pay.

Home lenders are well aware of this fact and are therefore disapproving of any applicant that decides to co-sign. As with all the other points listed above, you need to focus on keeping your credit and financial situation stable and constant until you have closed on the house.

No matter how badly you may want to help out a friend or family member, try to postpone co-signing until you have the money for your home purchase.

  1. Don’t spend more than the value of the home.

There are times when real estate markets become extremely hot! In real estate jargon, we call this a “seller’s market.” Most of the country has been experiencing these conditions over the last few years. Buyers have been put in the position where winning bidding wars are the norm, not the exception in many places.

In fact, you’re more likely to see fancy ways to beat the next guy to the punch like an escalation clause in an offer. When you are in an environment such as this, it is easy to overspend as a buyer. After all, if you have lost out on a few homes, you’re more than likely going to reach to get a house you love.

When involved with multiple offers it is not uncommon for the sale price to be pushed significantly above asking. While the buyer may be willing to do this, a lender may not. When the home doesn’t appraise, the borrower may be stuck putting up more money or risk losing the house. You can’t assume the seller will be cooperative and drop their price. You could be rejected for the loan if you can’t make up the difference.

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Thinking of Selling?

Key Questions for Owners Thinking of Selling

For many cities throughout the U.S. real estate markets, today undeniably favor sellers. With those markets that are particularly competitive, it can be very tempting to list your home even when you haven’t made a concrete decision to sell. Taking the plunge and listing can be an exhilarating decision, but doing so without asking yourself some important questions could leave you scrambling to figure out what you’re going to do should your home be a highly sought-after property.

If you’re toying with listing, ask yourself the questions below before you make your final decision.

How much is my home worth?

Unless you consistently check real estate prices in your area or are comparing comparable homes in your neighborhood, it’s likely you may not know the true value of your home. If you’re thinking of selling, it’s important to find out how much your home is worth. If you are dreaming of a new neighborhood, with the hopes that you’ll make a good amount of money off your current residence, do your due diligence and ensure your home is worth what you think. The last thing you want is to find out your home is worth less than you thought and your dream neighborhood is no longer an option. You can work with your local real estate agent to find out the current market value of your home.

How much is it going to cost me to sell?

When you list your home it can be easy to get caught up in the thoughts of how much you’ll make from selling, but selling a house does not come without costs. Selling can get expensive, especially when one considers all the outside factors that go into a home sale. Again, your local agent can help you understand the total costs (especially since many costs are dictated by where you live in the U.S. and other factors), but as a seller you can typically expect to pay these important items:

  • Agent commission (Seller typically pays Buyer AND Seller commission) (6%)
  • Staging and home preparation costs (1%)
  • Seller concessions (1-3% )
  • Repair costs (determined based on inspection)
  • Home ownership/overlap/moving costs (1%)
  • Closing costs (1-3%)

Sellers end up paying a fair share of the costs when it comes to the home sale/purchase. If all is said and done, and you’re only going to make $10,000 off your sale, is it really worth it to sell if your main goal is a good return on investment?

How long will it take to sell my home?

For some homeowners, a quick home sale is a reality if you live in a city with a competitive real estate market. But for many others, the time it will take your property to sell is really dependent on your where you live and the price and condition of your home. If your home is in excellent condition, it’s likely buyers will be immediately interested. If your house is in need of work, you might not see as many interested buyers. According to the National Association of Realtors (NAR), the median number of days a home in the U.S. sat on the market hit a new low of 29 days in April 2017. With that being the national average, your local real estate market will have its own average (that is also impacted by the condition of your home and the listing price), so there’s no concrete answer as to how long it will take to sell your home, but if you have a home that buyers want, it could be pretty quick.

Should I make repairs?

While many owners may balk at the idea of fixing up their home to sell it, the truth is that making repairs or improving your home can help sell it faster. You by no means have to make repairs when you’re toying with listing your home, but fixing up any pretty blatant cosmetic issues may help your property sell faster. It’s even a good idea to hire an inspector prior to listing to know if there are any issues with the core components of your home to avoid any surprises when it comes to a potential buyer hiring an inspector. It’s important to remember that major items, like issues with a foundation, HVAC system, or any other major part of the home, can be total deal breakers for some buyers, so make a point to assess your home prior to listing to ensure you know what you can leave as is and what you may want to fix beforehand.

Do I know where I want to go?

This is pretty important, especially if you are inclined to impulsive decisions. For some, selling a home due to a job relocation or wanting to be closer to family provides a for sure destination. But for those thinking of selling with no idea as to where they want to go, it’s a good idea to start thinking about and looking at places to move to. In those markets where homes go fast, you’ll want to have a pretty solid plan as to the area/neighborhood you want to be in, and you’ll have to be willing to compromise if you can’t find a home in your dream area. Seller contingencies are common, so don’t feel like you have to have your home sold before looking at other properties – it’s better to be on top of this than leave it to the last minute and not have a place to go once your current home sells.

Choosing to sell can be a hard decision, especially when there’s lots to consider. If you need any help, or just want to talk to someone with current real estate knowledge, your local agent is more than happy to answer questions and provide information on your local real estate market. Reach out today if you’re thinking of selling!

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